Lee paper on Hahn-Hausman test as a specification test published in Journal of Econometrics
Feb 29, 2012
Hahn-Hausman Test as a Specification Test
Yoonseok Lee & Ryo Okui
Journal of Econometrics, February 2012
This paper develops a modified version of the Sargan [Sargan, J.D., 1958. The estimation of economic relationships using instrumental variables. Econometrica 26 (3), 393–415] restrictions, and shows that it is numerically equivalent to the test statistic of Hahn and Hausman [Hahn, J., Hausman, J., 2002. A new specification test for the validity of instrumental variables. Econometrica 70 (1), 163–189] up to a sign. The modified Sargan test is constructed such that its asymptotic distribution under the null hypothesis of correct specification is standard normal when the number of instruments increases with the sample size. The equivalence result is useful in understanding what the Hahn–Hausman test detects and its power properties.